Financing of Terrorism: The Problem of Secrecy

Financing of Terrorism: The Problem of Secrecy
Thomas Bourneuf
Vol. 39 Associate Editor

Terrorist financing is the process by which terrorists fund their operations in order to perform terrorist acts. These funds can be used for several broad categories, including operations, propaganda, compensation, and providing social services to local communities.[1] Though dissimilar from tax evasion and money laundering, terrorist financers of­ten exploit similar weaknesses within the financial system to fulfil their objectives, a key weakness being the secrecy of various forms of financing.[2] Though the topic is important given the potential to save lives, there are numerous strategic and administrative barriers which have prevented meaningful progress in combating terrorist financing, despite international efforts.

Framing the Issue

Like many forms of financial misbehavior, secrecy is key to the success of terrorist financing. This secrecy can occur in many forms but is perhaps most potent in the form of the secrecy of anonymity.  This anonymity can result from (I) the liquidity, fungibility, and transportable nature of certain assets, (II) the often-small amounts of money being involved, and (III) the rise of self-financed terrorism.

There are certain assets which, because of their nature, are well suited to financing terrorism. For example, diamonds are highly liquid (i.e. easy to convert to cash), fungible (i.e. interchangeable to similar goods), and are often compact. Coupled with the often-turbulent political nature of the countries in which these diamonds are mined,[3] their use as a vehicle for international terrorism is ideal. Within the context of the Islamic State of Iraq and the Levant (ISIL), resources such as oil and drugs have been raised as a potential source of terrorist financing with many similar concerns (though, obviously, not as compact). Even simpler, terrorists can walk sums of cash across borders with little likelihood of being caught.

These characteristics are all the more problematic given that terrorism often involves small amounts of money. The September 11th terrorist attacks, which resulted in the deaths of 2,996 people[4] and has cost the U.S. economy an estimated $3.3 trillion, cost Al Qaeda approximately $500,000 to implement.[5] These small amounts, when funneled through various intermediaries and formats, are difficult to distinguish from the background noise of everyday commerce.

Finally, a traditionally hard-to-combat method of financing is that of self-funding, wherein terrorists, such as foreign terrorist fighters, obtain financing themselves through often legitimate means. In its simplest form, self-financing occurs when terrorists use personal assets to finance their activities. For example, a terrorist actor could use a personal vehicle to ram into a crowd rather than seeking outside funding to separately purchase a comparable weapon. Tracking self-financed terrorism is difficult because it is indistinguishable from funding used for legitimate commercial purposes.

International Efforts to Combat Terrorist Financing

In 2006, the General Assembly of the United Nations adopted the United Nations Global Counter-Terrorism Strategy, which highlighted the importance of addressing terrorist financing and the need for states to implement measures to prevent this flow of capital.[6] The Counter-Terrorism Implementation Task Force (CTITF) was created as a coordinating and information-sharing body to assist with the implementation of this resolution.

One legal difficulty addressed by the Task Force when attempting to criminalize terrorism financing is the challenge of “establishing a regime that would criminalize the funding of an act that had not been previously defined in a comprehensive manner.”[7] Fundamentally, many transactions will remain secret so long as there is not a comprehensive and acceptive definition of what the word constitutes. The Financial Action Task Force (FATF), in its 2003 memo of forty recommendations, listed several recommended measures to lift the veil of secrecy surrounding various illicit financing.[8] Several of these measures include undertaking customer due diligence methods, the prohibition of anonymous accounts, and extended record-keeping requirements for financial institutions.[9] These measures were meant to be used by governments and financial institutions to help combat terrorist financing.

The implementation of these recommendations has had limits and it is difficult to determine whether or not they have had significant effect. These flaws show the limitations of the international effort to combat this form of financing. The FATF 2014 Afghan drugs trafficking report noted that the Taliban are suspected of using the regulated banking system and other financial institutions to move the proceeds from drug trafficking.[10] In addition, several FATF reports have referred specially to the use of bank accounts to move funds to terrorist organizations.[11] As noted above, terrorism financing through the banking sector is often small-scale and difficult to distinguish from legitimate business transactions. Furthermore, a fundamental limitation of any legislation criminalizing terrorism financing is that it is difficult to determine the effectiveness of this legislations, in part because “a presumed preventative effect is by definition not measurable.”[12]

Conclusion

The above analysis and summation is only a small part of a broad and ever evolving topic. Like a hydra, terrorism financing is a beast that has many heads which are difficult to kill. Despite international efforts to lift the veil of secrecy covering terrorism financing, it is likely that the issues addressed above will continue into the future. Furthermore, the issues addressed above to not touch on other obstacles for preventing terrorism. For example, differences between terrorist groups make one-size-fits-all solutions impractical and ineffective. Without additional changes outside of the secrecy concerns addressed above, terrorist groups will likely be a concern for the foreseeable future.


[1] Fin. Action Task Force [FATF], Emerging Terrorist Financing Risks, at 9-10 (Oct. 2015),

http://www.fatf-gafi.org/media/fatf/documents/reports/Emerging-Terrorist-Financing-Risks.pdf [hereinafter FATF (2015)]

[2] AML Professionals and Addressing the Challenges of Combatting Terrorist Financing – an ACAMS Resource, ACAMS, http://www.acams.org/aml-resources/combatting-terrorist-financing/ (last visited Feb. 6, 2018). See Gabriel Zucman, The Hidden Wealth of Nations (The University of Chicago Press, 1st ed. 2015).

[3] See Aryn Baker & Tshikapa, Blood Diamonds, Time, http://time.com/blood-diamonds/ (last visited Feb. 6, 2018).

[4] Brad Plumer, Nine facts about terrorism in the United States since 9/11, The Washington Post, Sept. 11, 2013, https://www.washingtonpost.com/news/wonk/wp/2013/09/11/nine-facts-about-terrorism-in-the-united-states-since-911/.

[5] Shan Carter and Amanda Cox, One 9/11 Tally: $3.3 Trillion, N.Y. Times, Sept. 8, 2011, http://www.nytimes.com/interactive/2011/09/08/us/sept-11-reckoning/cost-graphic.html.

[6] Counter-Terrorism Implementation Task Force [CTITF], Tackling the Financing of Terrorism (Oct. 2009), http://www.un.org/en/terrorism/ctitf/pdfs/ctitf_financing_eng_final.pdf.

[7] Id. at 5.

[8] FATF , FATF 40 Recommendations (Oct. 2003), http://www.fatf-gafi.org/media/fatf/documents/FATF%20Standards%20-%2040%20Recommendations%20rc.pdf.

[9] Id. at 4.

[10] FATF (2015), supra note 1, at 20-22.

[11] See, e.g. FATF , Annual Report (2014), http://www.fatf-gafi.org/media/fatf/documents/brochuresannualreports/FATF%20Annual%20report%202013-2014.pdf.

[12] CTITF, supra note 6, at 6.


Vol 39. Online Editor: William Yau